Stock Story -
Private label food company TreeHouse Foods (NYSE:THS) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 1.9% year on year to $788.5 million. On the other hand, next quarter's revenue guidance of $880 million was less impressive, coming in 1% below analysts' estimates. It made a non-GAAP profit of $0.29 per share, down from its profit of $0.41 per share in the same quarter last year.
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TreeHouse Foods (THS) Q2 CY2024 Highlights:
- Revenue: $788.5 million vs analyst estimates of $785.4 million (small beat)
- EPS (non-GAAP): $0.29 vs analyst estimates of $0.13 ($0.16 beat)
- Revenue Guidance for Q3 CY2024 is $880 million at the midpoint, below analyst estimates of $889.3 million
- The company reconfirmed its revenue guidance for the full year of $3.47 billion at the midpoint
- Gross Margin (GAAP): 16.3%, down from 21.8% in the same quarter last year
- Free Cash Flow was -$42.2 million compared to -$80.7 million in the previous quarter
- Organic Revenue fell 5% year on year (4% in the same quarter last year)
- Sales Volumes fell 2% year on year (-7.2% in the same quarter last year)
- Market Capitalization: $2.07 billion
Whether it be packaged crackers, broths, or beverages, Treehouse Foods (NYSE:THS) produces a wide range of private-label foods for grocery and food service customers.
Shelf-Stable FoodAs America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales GrowthTreeHouse Foods is larger than most consumer staples companies and benefits from economies of scale, giving it an edge over its smaller competitors.
As you can see below, the company's revenue has declined over the last three years, dropping 2.1% annually as consumers bought less of its products.
This quarter, TreeHouse Foods reported a rather uninspiring 1.9% year-on-year revenue decline to $788.5 million in revenue, in line with Wall Street's estimates. The company is guiding for revenue to rise 1.9% year on year to $880 million next quarter, slowing from the 3.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 4% over the next 12 months, an acceleration from this quarter.
Volume GrowthRevenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether TreeHouse Foods generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, TreeHouse Foods's average quarterly sales volumes have shrunk by 2.5%. This decrease isn't ideal as the quantity demanded for consumer staples products is typically stable. Luckily, TreeHouse Foods was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 4.7% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren't sustainable over the long term unless the business is really really special.
In TreeHouse Foods's Q2 2024, sales volumes dropped 2% year on year. This result was a step in the right direction compared to its 7.2% year-on-year decline 12 months ago.
Key Takeaways from TreeHouse Foods's Q2 ResultsWe were impressed by how significantly TreeHouse Foods blew past analysts' EPS expectations this quarter. We were also excited its organic revenue growth outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter was underwhelming. Overall, we think this was a strong quarter that should satisfy shareholders. The stock traded up 1.3% to $39.80 immediately after reporting.
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